Licence Raj – An obstacle in India growth..

Licence Raj – An obstacle in India growth..

India has had a good growth in the past 15 years and more importantly in the last 5-8 years. The growth has been at a rate of over 9% year after year in the past 4-5 years. This year the growth is set at 8.4 %. The private sector has been doing a tremendous job and the growth is also dependent on the Indian administration called the civil service. The civil service is about 10 million strong in the public sector and the government sectors. The faster growth rate is affected by the failure of the government to react quickly to improve the infrastructure and this is setting a speed limit on growth. Significant amount of foreign resources are being invested in India and most of the foreign capital is pumped in the Indian Stock Market (BSE) and this turbulence is noted in the Indian Stock market lately and there is a noticeable unproductive growth in the FOREX.

In order to sustain the growth there is an immediate need to change some of the government policies and the License Raj system prevalent in India.

Reforms are not done at a fast enough pace and the poor infrastructure is affecting the foreign capital inflow and this largely due to the government debts, limited freedom to the banks, pension funds etc..

The civil service is administered by the elite Indian Administrative Service (IAS) who provide the administration and management of the state welfare measures and partly oversee the infrastructure.

The state welfare is managed by Collectors, formed by the British Rulers, as bill/revenue collectors for the district. The state magistrates and the collectors sometimes oversee about more than 500 villages and serve over a million people and have out dated machinery. And some barely have the technology such as Computers etc.. to manage these welfare measures. This leads to lot of delay and red tapism and the welfare measures may not reach the villages or the villagers in a timely manner and the critical infrastructure projects either get delayed or do not see the light.

Although India does provide Universal Health care, water, food and education the spending on this basic provisions is very meager and more needs to be done to ensure that the basic welfare reach the poor and the needy in a timely manner.

India Civil service has about 3 million in the central gov and about 7 million in the states and the world largest employer, the Indian Railways, has over 1 million employees. Majority of the civil servants are peons, clerks, office administrators, office assistants, drivers, who are ready to take orders and do the work from their superiors or administrators; about 5000 IAS officers. All the 604 districts in India, about 60% of Public Sector units, State organizations, Police and Railways are head or managed by the IAS officers. Each year about 100-150 IAS officers are recruited from about 200, 000 applicants from across the country.

Although this is an elite position, there is a large inequality in the salaries between the private sector and due to this the quality of the IAS officers appears to be on the decline to due the inequality. Political influence, low pay structure and interference, caste based reservations etc.. are also having an impact on the quality.

It is critical that the Indian Government take a note of the situation and look at revamping the License Raj system to meet the current times to keep in pace with the dynamic economy and to ensure that the growth can be sustained on an ongoing basis.

The foreign capital market is competitive and countries like China, Philippines, Malaysia, Indonesia, Brazil etc..are competing for this foreign investments and capital. It is important for India to keep a check on the red tapism and improve the infrastructure in a quick turnaround period and in planned manner in order to sustain the growth.

D&A

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Resources:
1) The Economist – London
2) Foreign Affairs – USA
3) Business Week - USA